California's budget deficit may be billions of dollars larger than the already big number predicted by Democratic Gov. Gavin Newsom, raising concerns about the Golden State's fiscal future.

Last month, Newsom announced that California faces a projected budget deficit of $22.5 billion for the coming fiscal year. The figure represented a striking downturn from last year, when the state enjoyed a surplus of about $100 billion due to federal COVID relief and surging capital gains.

While the predicted year-to-year drop-off seemed large, it may not have been large enough.

California Gov. Gavin Newsom listens to a question while meeting with reporters (WHD Photo/Rich Pedroncelli, File)

CALIFORNIA FACES BUDGET DEFICIT DESPITE NEARLY $100 BILLION SURPLUS LAST FISCAL YEAR

The California Legislative Analyst's Office (LAO), a government agency that analyzes the budget for the state legislature, estimates in a report published last week that Newsom's forecast undershot the mark by about $7 billion, thanks to about $10 billion less in tax revenues than expected.

"In particular, using recent revenue collections and economic data, we estimate there is a two‑in‑three chance that state revenues will be lower than the governor's budget estimates for 2022‑23 and 2023‑24," writes Gabe Patek, the legislature's budget analyst. "Our best estimate is that revenues for these two years will be roughly $10 billion lower — implying a larger budget problem by about $7 billion."

Tax revenues are already much lower this year than the prior one. In January, California's monthly tax revenue in was about $14 billion lower than during the same month last year. Meanwhile, tax revenue in the current fiscal year, which started July, is about $23 billion lower than in the previous year, according to the Wall Street Journal.

California Gov. Gavin Newsom may have underestimated just how big his state's budget deficit will get.  (Tom Williams/CQ-Roll Call, Inc via Getty Images)

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That's despite California already having the highest top income tax rate of any state at 13.3%. Indeed, the top 0.5% of taxpayers pay 40% of California's state income tax, according to recent figures.

H.D. Palmer of the California Department of Finance said in a recent interview with California Public Radio that in 2020, 1% of the total number of income tax returns that were filed were responsible for more than 49% of all the personal income tax that was paid in that year.

Capital gains are also being affected with Silicon Valley tech companies facing volatile equity prices as they lay off employees and cut bonuses amid fears of a possible recession. Another potential issue hurting tax revenue could be the exodus of California residents to other states, particularly wealthy Californians who pay higher taxes.

California Gov. Gavin Newsom speaks during a press conference in San Francisco, California.  (Justin Sullivan/Getty Images)

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Still, tax revenues are above their historical averages, according to the LAO.

"While revenues are moderating from the recent peak, they are still above average historical levels," writes Patek. "Even after adjusting for inflation, anticipated revenues for 2023‑24 remain about 20% higher than before the pandemic."

Patek also noted "spending remains above historically recent peaks," explaining it's unlikely that tax revenues will be high enough over the next few years to afford California's projected spending levels.

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Newsom is set to release a revised budget in May, which is expected to be quite different than the version from last May that projected a $97.5 billion surplus.

Newsom's office didn't immediately respond to WHD News Digital's request for comment.